How Long Settlements Increase Development Site Value

Why Long Settlements Exist

The single biggest cost in a development project is carrying cost on the land before the project starts generating revenue. A developer who buys a $5m site on a 60-day settlement and then takes 18 months to obtain DA and start pre-sales pays roughly $700k+ in interest and opportunity cost on dead land before a single apartment is sold.

Long-settlement contracts solve that problem. Instead of paying $5m up front, the developer pays a 10% deposit ($500k) on contract signing, then pays the balance ($4.5m) only when the development is ready to start. In return, the developer can pay a higher headline price — because they're saving the carrying cost.

That saving gets shared with the vendor. The result: a higher sale price than the same site would command on a 60-day settlement.

The Mathematics of the Uplift

Suppose a Brisbane development site is worth $5m on a standard 60-day settlement. The developer's all-in cost for 18 months of carry on $5m at a blended 9% cost of capital is approximately:

$5m × 9% × 1.5 years ≈ $675k

If the vendor agrees to an 18-month settlement, the developer saves roughly that $675k. Industry practice is to share that saving — typically 50-70% to the vendor. So the same site might trade at:

$5m + ($675k × 60%) = $5.4m on an 18-month settlement.

That's an 8% uplift in headline price for accepting a 16-month delay on settlement.

For longer terms, the maths compounds. A 30-month settlement on the same site can lift price by 15-20%, and complex structures with put-and-call options spanning 4-5 years can lift price by 25%+ where the rezoning or amalgamation potential is meaningful.

What Vendors Get In Return

A long-settlement contract isn't a handshake — it's an unconditional contract with a deferred settlement date. Vendors get:

1. Locked-in price, even if the market falls during the settlement period
2. Deposit released or held in trust (negotiable; 10% deposit is standard)
3. Right to remain in the property or rent it back during the settlement period (often included)
4. Settlement guarantees via deposit forfeit if the developer fails to settle
5. Standard conveyancing protections including caveat rights

In effect, the vendor sells the property today at a higher price, but receives the cash later — much like land banking, but with the headline price guaranteed.

When Long Settlements Don't Work

Long settlements aren't right for every vendor. They generally don't suit:

• Vendors who need immediate cash (downsizers funding the next purchase, divorce settlements with court deadlines, debt repayment)
• Vendors over 70 with health concerns, where a long settlement period creates estate complications
• Sites where the developer's covenant is weak — settling 24 months later requires confidence the developer will still exist
• Markets where prices are rising sharply — locking in today's price could leave money on the table

ACRES assesses these factors with every long-settlement client before recommending the structure.

How to Negotiate a Long Settlement

The best practice for negotiating a long-settlement contract:

1. Get competitive tension first. Long settlements work best when 2+ developers are competing for your site, because each will compete on price within the long-settlement structure.
2. Request a higher deposit (15-20%) — non-refundable on default — to lock the developer in.
3. Insist on a put option in your favour at the back-end, requiring settlement even if the developer's funding falls over.
4. Negotiate licence to occupy — your right to remain in the home or rent it back at peppercorn rent during settlement.
5. Get a developer covenant — security from a parent entity if the buyer is a special-purpose vehicle (SPV).
6. Lock in CPI escalation if settlement is 24+ months away to protect against inflation.
7. Use a specialist property lawyer familiar with development-site contracts.

Common Structure: Put and Call Option

A more sophisticated version is the put and call option. Instead of an unconditional contract, the developer takes an option to buy (a "call") that they can exercise once they have DA and pre-sales. The vendor takes a "put" that allows them to force the developer to settle if certain triggers fire.

This structure is common on larger, more speculative sites where DA outcome is uncertain. The vendor receives an option fee upfront (typically 1-2% of land value, non-refundable) and the strike price is locked. If the developer doesn't proceed, the vendor keeps the option fee and the property.

Read more in our companion guide: Understanding Put & Call Options.

Worked Vendor Decision

Suppose you own a development-suitable block in Coorparoo. You receive two offers:

• Offer A: $4.0m, 60-day settlement, unconditional
• Offer B: $4.6m, 24-month settlement, 10% non-refundable deposit on signing

On paper Offer B is 15% higher. But:

• You'd have $4m in your bank earning ~5% in cash for 22 extra months ≈ $367k of foregone interest
• Your $460k deposit on Offer B earns interest in trust
• You can stay in the home rent-free if negotiated
• Offer B locks in if the market falls

Net-net, Offer B is approximately $400k+ better for the vendor in most cases. But every situation is different — the right answer depends on the vendor's age, cash needs, and tax position.

Daniel McCormack

Managing Director, ACRES — Australian Commercial & Residential Group

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